Military Exports: Concerns Over
Offsets Generated With U.S. Foreign Military Financing
Program Funds (Letter Report, 06/22/94,
GAO/NSIAD-94-127).

"Offsets" are industrial and commercial
compensation practices provided to foreign governments
and firms as inducements or conditions for the purchase
of military goods and services. Israel, Egypt, Greece,
and Turkey are the largest recipients of the U.S. Foreign
Military Financing (FMF) Program, which provides offsets
in conjunction with foreign military sales. Since fiscal
year 1975, the United States has provided more than $60
billion in FMF grants and loans to these countries. The
FMF Program has been justified to Congress on the basis
of its role in (1) strengthening the security of friendly
and allied countries and (2) benefiting the U.S. economy
because the funds are generally spent on U.S. goods and
services. U.S. laws and regulations, however, do not
preclude offsets when recipients are making purchases
with FMF funding.

Using FMF funds, Israel, Egypt, Greece, and Turkey
benefitted in two ways--first with the U.S. government
funding or underwriting their weapons purchase with
grants or loans, and then by developing their industrial
bases and other aspects of their economic through offset
requirements from the U.S. government or contractors.
Offsets reduce the employment, defense industrial base,
and other economic benefits that normally accrue to the
United States from weapons exports. Some offsets have
caused U.S. contractors as well as companies in
nondefense businesses to lose work. Pentagon officials
said that no other arms supplier provides a combination
of grant aid and offsets like the United States does. GAO
summarized this report in testimony before Congress; see:
Military Sales: Concerns Over Offsets Generated Using
U.S. Foreign Military Financing Program Funds, by Frank
C. Conahan, Assistant Comptroller General for National
Security and Internal Affairs Programs, before the
Subcommittee on Commerce, Consumer Protection, and
Competitiveness, House Committee on Energy and Commerce.